World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Saturday, August 8, 2009

Friday afternoon the latest Consumer Credit numbers for the month of June were released. The consensus called for a contraction of between -$3.0 and -$10.0 billion. It came in with a contraction of -$10.3 billion. Here are the highlights according to Econoday:

HighlightsBanks are cutting down credit while consumers, hit by job loss or the fear of job loss, are paying down credit, not good news for policy makers who are trying to stimulate spending. Consumer credit has been contracting at a record pace this year including in June when credit contracted $10.3 billion. The contraction was split evenly between revolving, down $5.3 billion, and non-revolving, down $5.0 billion. Consumer credit contracted at an annual rate of $5.2 billion in the second quarter, more severe than the $3.6 billion rate of contraction of the first quarter. There's never much initial reaction to the consumer credit report, mostly because it's issued near the end of the day. But this report is certain to appear in next week's commentaries, especially among the bears and realists.

“…especially among the bears and realists.” Ha, ha, they’re talking about us. Funny how he associated bears with realists like that. If you’re not a “realist” then you must be a part of the Economic Mass Psychosis (delusional) that seems to have terminally infected America and most of the world as well…

While a $10 billion contraction in credit may not seem like much compared to the multi-trillion plus mega numbers thrown around lately, it is, in fact, very significant as most modern recessions do not see ANY contraction in credit – maybe slower growth but almost never contraction.

There are two types of dollars – real dollars and credit dollars. Credit dollars are made every single time you or any consumer takes out a loan or even uses your credit card to make purchases. Credit dollars are NOT REAL dollars. They are different in that they carry interest and must be paid back with REAL dollars earned through your productive efforts – the bank will NOT take back credit dollars in repayment of your loan (unless of course you take out a loan from another source).

In the world of consumer credit, there are two types, revolving (mostly credit cards), and non-revolving (installment credit). Revolving credit is a relatively modern innovation that has caused vast credit expansion that has been a part of the overarching credit bubble that led to higher corporate profits and thus higher stock market prices as well.

Generally, in recessions revolving credit growth slows and then turns back up… the stock market then follows. That’s NOT what’s happening now. Consumer credit is continuing to fall at a faster pace while the stock market is zooming in a reflexive rally.

When you look at the chart of total consumer credit, you will not see a spectacular cliff dive like the employment ( lack thereof ) charts I recently posted. No, you will see a massive parabolic rise above $2.5 TRILLION, and a little hook at the end. Look carefully at the “little” hook though. You will see NOTHING even close going all the way back to 1940:

Now, when we view that same chart in terms of year over year percent change, then we begin to see what a rare occurrence a contraction in consumer credit has been over the past ¾ of a century:

Note that the dip below the zero mark is the first since 1992, the only other time total consumer credit has been negative since 1940.

Now let’s look at Revolving and Non-Revolving credit…

The chart below shows Total Revolving Consumer Credit since the late 60’s in yoy percent change. Note that this is the first time in history that Revolving Credit has been negative (did not have revolving credit prior to that time):

And here’s the same chart for Non-Revolving Consumer Credit – also negative and still trending downward:

Remember, the consumer is at least 70% of the economy. When they are no longer using credit – and this is just one aspect of their credit – then corporate earnings will suffer, and earnings are what ultimately underpin the price of stocks.

Of course we know that to offset the fall in credit that our own government is committing Seppuku (Hara-kiri) by gorging itself on debt that cannot ever hope to be repaid:

The shadow banking system is responsible for much of the bubble dynamics that were created. Consumer debt was securitized just like subprime mortgages were. In the following charts, note that the securitization of Non-Revolving and Total Consumer Credit began in about the year 1990 and is now very NEGATIVE:

Hmmm… 1990. Let’s look at a non-logarithmic chart of the DOW Industrials. Notice anything starting to happen in the stock market about that time?

Think there’s any coincidence?

In my mind there is no doubt that the shadow banking system and the securitization of debt process led to the largest credit bubble in history. That bubble grew out of control, mostly unregulated and untracked. We are now paying the price and will be paying the price for generations as that mechanism was so successful at pulling future incomes into “today” that there is now simply no way that people’s earnings can pay back all the debt (Death by Numbers). This is just the beginning of the debt flush, it, quite unfortunately, will take years and years to get under control.

The shadow banking system and securitization of debt - it’s the central banker’s “secret garden” that all of the politicians so desperately want…

This is a terrific chart showing the “reflexive rebound” of the current bear market, the 2000 – 2003 bear, and the 1929 – 1930 market crash. Put together by Haver Analytics, it clearly shows the A-B-C structure of major declines.

This is NOT a typical recession, and it is NOT over (unless you consider CNBC to be your authoritative reference).

“Proprietary and Confidential” yet all over the internet, if you haven’t seen their August “State of the Market” update, I will say that there is a lot of good data and charts inside – most of which has been covered on this site, but not all.

Of course you have to wade through 99 pages of material, 20% of which is written by their legal department. They offer trading “suggestions…” and I know it’s tempting to just do the exact opposite of what they say, but they do seem to be almost as negative as me on the economy and present some pretty good data.

Keep in mind that anytime you read something from Goldman, you should first; put on gloves, wash your monitor thoroughly, and if you print anything be sure to give your printer some TLC as it’s awfully traumatic to force such evil karma through the wiring and circuit boards. In fact, Google may want to hire a priest to exorcize their servers now.

But first I just want to point out a couple of charts that caught my eye…

Note that of all the places in the world, the good old USofA is experiencing the worst current account balance – by far! Oh so proud…

This is a chart that’s making the rounds in various forms, but GS sure made it pretty, so here it is – S&P earnings. Oh yeah, earnings are doing much better. Gee, that chart’s slope looks just like the slope of the stock market over the past six months… NOT. Stock prices are ultimately driven by earnings! Even those earnings are WAY OVER INFLATED due to the financial industry’s return to mark to fantasy and their HIDING of derivatives and off balance sheet DEBT. Thanks GS. While I don’t really believe in Hell, if there is such a place I’m sure most of you will be welcomed very WARMLY.

Hey, at least they admit that CRE (commercial real estate) probably has a way to go on the downside. What caught my eye here is the Commercial Mortgage Backed Securities (the securitization of commercial mortgages) is effectively DEAD. GOOD!

Evidently Peter Schiff is getting serious about his run for Senate. A run that I absolutely 100% support. Peter is a legitimate voice of reason. If we had a Senate full of people like him, this country would look a whole lot more like our founding fathers envisioned and whole lot less like the warped and demented vision emanating from the central bankers.

He is on a mission to raise money, a mission that I supported by donating myself yesterday and encourage you to do likewise, no matter how much or how little.

No matter how fruitless and frustrating our system is, it will not change unless we support people who can look beyond central banker manipulation.

Here’s a link to his site, you can see that he’s raising big money pretty quickly, the more the better:

Help me raise $750,000 by the end of the weekend to demonstrate to Chris Dodd and other tax and spend politicians that we will not stand by idly. We will fight to take back America from a government that has gotten out of control.

Corporate bailouts, “stimulus” programs and reckless spending are putting our economy in a deeper hole. You would think that out of 100 United States Senators, at least one of them would know something about finance and economics. However, that is clearly not the case.

We must send Washington a message. You can help do that by joining Team Schiff to take back America at www.schiffforsenate.com. Washington needs to know that more government regulation, “stimulus” programs and corporate bailouts will only worsen our economy. The road to economic recovery lies with free market solutions from business and individuals – not the Federal Government.

Always sarcastically eloquent (love that), Kunstler focuses our attention once again on the Economic Mass Psychosis. We deal with and present a lot of numbers on this site, so I think Jim’s post is a great reminder to focus on reality behind the numbers – THAT DON’T WORK.

Sure to offend almost everyone, I left off the last couple of paragraphs… please feel free to entertain yourself by following the link below, but only if you have tough skin!

One of main reasons behind the vast confusion now reigning in the USA, our failure to construct a coherent consensus about what is happening to us (or what to do about it), is our foolish obsession with econometrics -- viewing the world solely through the "lens" of mathematical models. We think that just because we can measure things in numbers, we can make sense of them.

For decades we measured the health of our economy (and therefore of our society) by the number of "housing starts" recorded month-to-month. For decades, this translated into the number of suburban tract houses being built in the asteroid belts of our towns and cities. When housing starts were up, the simple-minded declared that things were good; when down, bad. What this view failed to consider was that all these suburban houses added up to a living arrangement with no future. That's what we were so busy actually doing. Which is why I refer to this monumentally unwise investment as the greatest misallocation of resources in the history of the world.

Even this interpretation -- severe as it is -- does not encompass the sheer damage done by the act itself, on-the-ground and to our social and cultural relations. Suburbia destroyed the magnificent American landscape as effectively as it destroyed the social development of children, the worth of public space, the quality of civic life, and each person's ability to really care about the place they called home.

It's especially ironic that given our preoccupation with numbers, we have arrived at the point where numbers just can't be comprehended anymore. This week, outstanding world derivatives were declared to have reached the 1 quadrillion mark. Commentators lately -- e.g. NPR's "Planet Money" broadcast -- have struggled to explain to listeners exactly what a trillion is in images such as the number of dollar bills stacked up to the planet Venus or the number of seconds that add up to three ice ages plus two warmings. A quadrillion is just off the charts, out of this world, not really subject to reality-based interpretation. You might as well say "infinity." We have flown up our own collective numeric bung-hole.

The number problems we face are now hopeless. America will never be able to cover its current outstanding debt. We're effectively finished at all three levels: household, corporate, and government. Who, for instance, can really comprehend what to do about the number problems infesting Fannie Mae and the mortgages associated with her? There's really only one way out of this predicament: to get ready for a much lower standard of living and much different daily living arrangements. We can't wrap our minds around this, so the exercise du jour is to play games with numbers to persuade ourselves that we don't have to face reality. We're entertaining ourselves with shell games, musical chairs, Chinese fire drills, Ponzi schemes, and Polish blanket tricks (where, to make your blanket longer, you cut twelve inches off the top and sew it onto the bottom).

Now that Newsweek Magazine -- along with the mendacious cretins at CNBC -- have declared the "recession" officially over, it's a sure thing that we are entering the zone of greatest danger. Some foul odor rides the late summer wind, as of a rough beast slouching toward the US Treasury. The stock markets have gathered in the critical mass of suckers needed to flush all remaining hope out of the system. The foreign holders of US promissory notes are sharpening their long knives in the humid darkness. The suburban householders are watching sharks swim in their driveways. The REIT executives are getting ready to gargle with Gillette blue blades. The Goldman Sachs bonus babies are trying to imagine the good life in Paraguay or the archepelego of Tristan da Cunha.

Friday, August 7, 2009

Since a picture is worth one hundred million words from the BLS, I decided to let the Fed’s own charts once again do the talking.

After reviewing the employment charts at the St. Louis Fed (Fred), that were updated just today, I have come to the conclusion that ultimately we are all going to wind up being government employees who do nothing but cut each other’s hair! Oh, and those who don’t do that will work in the “financial” industry.

And just so you can see clearly how GOOD TODAY’S NEWS really is, here is a generic chart of what the sheeple are shown from the BLS, U3 unemployment. I very subtlely pointed out the green shoot in today’s employment situation update – it’s there on the chart, you can see it clearly:

Clearly the equity market's reaction today was commensurate. Oh, and the numbers were completely legit, just ignore this little chart made by Chris Martenson showing the highest “birth/death model” adjustments ever in the month of July:

Of course, as ugly as that unemployment chart is, I hope everyone who visits my site realizes that the current U3 number is NOT comparable to the way Unemployment used to be tracked. Oh no. For that, we turn to John Williams at Shadowstat.com where he presents U6 as well as his “SGS Alternative:”

*Note: the little turn down in U6 (over 16%) is only there because of seasonal adjustments.

But you know what? Even John William’s 20%+ unemployment calculation didn’t really grab my attention. Oh no. What really caught my eye this time was this chart:

Look at that chart. The United States TODAY employs FEWER people to manufacture Non Durable Goods than we did during WWII! And that’s with a population that has grown from 130 million to over 306 million!

Or if you really want to compare the employment numbers with a figure, why not use the “Civilian Noninstitutional Population?” What’s that?

In the United States, the civilian noninstitutional population refers to people 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (penal, mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

Of course Non Durable Goods Manufacturing would be things that aren’t built to last! Where on earth do you suppose you would go to build those? China of course!

Sure, we are now a “service economy.” We don’t build things, we let others do that while we all cut each other’s hair, do manicures, “engineer” financial products (rob people), and blog for a living. It’s a terrific economy really, much better than Zimbabwe. After all, China’s still sending us their nondurable goods!

Least you think that jobs have only been lost in the nondurable goods jobs category, please take a look at the Durable Goods Manufacturing employment. Much better there, we have only given up every single bit of employment growth there since about 1947:

Stunning.

Yes, when it comes to manufacturing in the United States, welcome back to 1940 my employment seeking friend:

But you know how bad the financial industry has taken it on the chin. Let’s take a look at employment in that field, they must be hurting as bad…

Oh. Maybe not as much. I’m sure the geniuses at Goldman deserve that $700,000 average bonus for figuring out how to keep themselves employed while laying off the rest of working America which is exactly what has happened over the past 30 years.

And since we don’t manufacture much of anything, we don’t need as many employees to mine stuff, either. Again, whatever we need we can get from overseas.

Good thing we can all flip burgers at McDonald’s because the service industry employment is hanging tough:

Would you like fries with that?

But if you work in information services, you know, the high tech field of computers and the internet, it’s a good thing you work in a stable and growing career field:

Oops. Sorry. Don’t worry, just write if you’d like me to talk you through that short sale – it’ll only affect your credit for a year or three.

It’s a good thing that governments, like the State of California, are so fiscally healthy, I mean just look at all the employment growth there!

No slow down there! YET. But you can quote me on this, IT’S COMING.

Of course we know that construction is also hurting... just not as much as I would expect. I think this is one area of employment that is still overdone. Only back to the year 1998? Not good enough! We still have way too many houses, way too many strip malls, and way too many office buildings:

And, as to the myth that Americans work a 40 hour work week… NOT ANY MORE. Now 33 hours per week is average – yet another form of underemployment:

Look real hard, there’s a green shoot at the end of that chart too.

No wonder stocks are priced at a P/E of 120+!

As far as the percent of the population that’s working? Never seen a better example of a head and shoulder’s pattern! I think Point showed us that one earlier, but here we are back to about 1978:

The problem with this is that back in the '50s, '60s, and '70s most families only had one working person supporting the entire family. Today it takes at least 10 just to support the necessary 8 computers, 4.5 cars, 18 cell phones, and $4 a gallon gasoline. Not to mention all the other cheap nondurable goods made in China. Yet, my point is that with that type of employment ratio we are back to the same raw numbers of workers as in the way back past. That means that for every household today that has two fully employed workers, there is at least one houshold with NONE.

When it comes to the length of time spent on the unemployment payrolls, here we can finally see what the rally today was all about. Just look at the chart showing civilians who were unemployed for 5 to 14 weeks. A big drop, no doubt:

But you’re going to have no luck seeing ANY decline in the number of people unemployed for longer than 15 weeks:

Nearly 8 million people! Now look at this chart showing the number of civilians unemployed for 27 weeks or longer! Yes, that's 5 million people drawing benefits for that long or longer...

And here's the mean length of time of all those on unemployment:

Anyone else see a rising trend there? Maybe it's just me, obviously all the other market participants are seeing something vastly different.

Don’t worry about those who are in danger of running out of benefits after exhausting their 79 weeks worth though. I understand that little Timmy Geithner is looking into extending those benefits even further... Of course the benefit to Timmy and the Bankers is that by giving 34 million Americans free food, and millions more pay for not working, is that they can still sit on the couch and watch the NFL which is coming back on television real soon!

I believe that is method number 3,366 in the central banker playbook, “How to Placate an Entire Population so that they don’t Hang You from the Nearest Tree.” I hear it’s a best seller, and fortunately there are still plenty of employed financial engineers to keep the book sales up!

And this is why someday soon we will all be government employees who do nothing but cut each other’s hair, “engineer” financial products, and blog. Damn, I knew I should have moved to New York and found a job on Wall Street.

SAN FRANCISCO (CN) - Small businesses that received $682 million in IOUs from the state say California expects them to pay taxes on the worthless scraps of paper, but refuses to accept its own IOUs to pay debts or taxes. The vendors' federal class action claims the state is trying to balance its budget on their backs.

Lead plaintiff Nancy Baird filled her contract with California to provide embroidered polo shirts to a youth camp run by the National Guard, but never was paid the $27,000 she was owed. She says California "paid" her with an IOU that two banks refused to accept - yet she had to pay California sales tax on the so-called "sale" of the uniforms.

The class consists mostly of small business owners, many of whom rely on income from government contracts to keep afloat. They say California has used them as "suckers" as it looks for a way to bankroll its operations while avoiding its own financial obligations.

"Instead of seeking funds through proper channels, the State has created a nightmare," the class says. "Many of these businesses will not survive if they are required to wait until October 2009 to have these forced IOUs redeemed by the State."

The class claims the state is violating the Fifth and Fourteenth Amendments. It demands that California be ordered to honor its own IOUs, plus interest. They are represented by William Audet.

WASHINGTON (Reuters) - For the first time, more than 34 million Americans received food stamps, which help poor people buy groceries, government figures said on Thursday, a sign of the longest and one of the deepest recessions since the Great Depression.

Enrollment surged by 2 percent to reach a record 34.4 million people, or one in nine Americans, in May, the latest month for which figures are available.

It was the sixth month in a row that enrollment set a record. Every state recorded a gain in participation from April. Florida had the largest increase at 4.2 percent.

Food stamp enrollment is highest during times of economic stress. The U.S. unemployment rate of 9.5 percent is the highest in 26 years.

Average benefit was $133.65 in May per person. The economic stimulus package enacted earlier this year included a temporary increase in food stamp benefits of $80 a month for a family of four.

Food stamp enrollment

Month Total

May 34.409 million

April 33.758 million

March 33.157 million

February 32.556 million

January 32.205 million

December 2008 31.784 million

November 2008 31.097 million

October 2008 31.050 million

September 2008 31.586 million

Notice the relentless climb in the numbers? Guess what… those numbers are not “seasonally adjusted.” There is no “birth/death” model used. It simply is what it is and it is shocking – 11.24% of the entire population.

Please compare and contrast that reality with the bonuses on Wall Street or with the money printing games being played by the Fed, Treasury, and central banks.

In Zimbabwe, they printed easy money too and the people starve as the cost of a loaf of bread becomes unaffordable. They have no food stamps in Zimbabwe, but for a while they had the best performing stock market in the world. For a while.

Today is all about the employment report which came in with a headline of “only” 247,000 for the month of July while the rate dropped from 9.5 to 9.4%. Here’s how the equity futures reacted:

The dollar was up and bonds were down sharply on the release.

In a nutshell, keep in mind that this current economic crisis has been going on for so long that there are now many people dropping off the back side of being counted. The consumer is still burdened with debt and more and more people are losing their incomes. Talk of employment growth is simply premature. The higher stocks go without real earnings and without clearing the debts from consumers, the higher price to earnings ratios will go. It is ultimately earnings that underpin the equity markets and the price of stocks has NEVER been so high compared to earnings.

It would take one heck of a lot of growth to pull P/E’s back into a normal historic range, and the only reason they look as “good” as they do is because the financial industry was allowed to go back and mark their assets to fantasy – otherwise the large banks are still insolvent and would not have earned a nickel.

HighlightsJob losses came in much lower than expected and point to being at or near the end of recession. Nonfarm payroll employment in July shrank 247,000, following a revised decline of 443,000 in June and a revised drop of 303,000 in May. The July drop in jobs was not as severe as the consensus forecast for a 300,000 decrease. June and May revisions were up a net 43,000. The easing in job losses was seen in both goods-producing and service-providing sectors.

From the household survey, the civilian unemployment rate unexpectedly slipped to 9.4 percent from 9.5 percent in June and was below than the consensus projection for 9.7 percent. The decline was due to a sizeable drop in the labor force.

Wage inflation returned more to normal in July as average hourly earnings rose 0.2 percent after no change June. The latest gain matched the consensus forecast for a 0.2 percent rise. The average workweek edged up to 33.1 hours from 33.0 hours in June.

Today's report is very good news for equity markets. Job losses are getting smaller and the unemployment rate actually slipped. Without a doubt, the July numbers should be a big psychological boost for equities. Meanwhile, bond prices are down.

Keep in mind where the BLS’s data falls within the spectrum of reliability – here’s how Chris Martenson put it:

Into the final bucket goes the utterly unreliable 'data,' so bad that I need to use quotes around it. This 'data' is modeled or otherwise manufactured out of thin air with no accountability, does not square up (at all) with good sources of data, has massive errors in methodology that have never been explained, consists of survey data for reasons covered in an earlier Martenson Report (Survey Says...), is self-referential (e.g. LEI or 'leading indicator' data), and/or has been proven repeatedly in the past to be consistently biased for political or self-serving gain.

Okay, now that we know we’re talking about massaged numbers that are derived from sampling and processed in a myriad of ways to arrive at a guess. And if that were done consistently, at least we could derive a trend, but that’s not the case either, especially over the long run.

Now, let’s look at the breakout of categories within this report to see where the jobs are being lost and created:

Areas in red are areas that lost jobs while the green are areas that gained jobs. What you’ll notice is that almost all the job gains are still in the government sector while all the losses are in the private sector. This is the trend and has been for quite some time. Of course it requires private sector money to pay for those in the government and you can see that our economy is getting stilted further and further out of balance with BIG government being the understatement of the century.

In deriving the reported numbers, the BLS does provide some of the raw numbers in each step of the “cooking” process. The number from the table that most closely resembles how data was presented in the past is the U6 number:

The numbers presented to the public are the U3 numbers. You can see that it was only with seasonal adjustments that both the U3 and U6 rate improved and that without seasonal adjustments the rate was steady.

The numbers, as presented by the BLS, are trending to a slower rate of job loss. Again, the people who are not tracked, like part time employees who would work full time, those “discouraged workers” who have just given up. And then there are those who the BLS just creates out of thin air using their “birth/death” model (Mish does a good job of covering that aspect and I’m sure he’ll have the breakout later).

So, has employment turned an actual corner or is it just a statistical blip combined with distortion? For me it’s too difficult to tell, the other more reliable data, like tax revenue and shipping numbers, do not support this report and thus we need to see if the trend of falling numbers can be maintained.

From a technical perspective, probably the most bearish thing that could happen is that the markets spike this morning and then close down later today or even on Monday. Rallies often END on “Good” news, and we are now up against heavy resistance, extremely overbought, and McHugh’s wave count suggests we are finishing wave 1 up of c up.

Another technical possibility is that we are forming a big rising bearish wedge. Everyone is focused on the “V” or the inverse H&S pattern, but check out the rising wedge. On the SPX we may be overthrowing the top of the wedge now, but it’s even better formed on some of the other indices like the Transports:

Thursday, August 6, 2009

While I’ve been writing on the economy for a number of years, I did not start Economic Edge until the end of November of last year. My goal? To reach 500 page views a day within a year. That was a well read economic blog and that was my goal. Today I average about 4,400 views per day, nearly nine times my goal!

While still not a tremendous amount of viewers compared to the popular sites that have been around awhile, that’s a nice comfortable level that allows me to interact more with my readers. That's my personality, I'd rather share in a deep discussion with a few than a shallow one buried in a crowd.

My newsletter and newspaper writing just never generated enough circulation to make it worth my time. The newspapers would gladly run rosy "buy, buy" articles but would simply not run any article that was even remotely negative on the economy – the deal breaker for me was when an editor changed my headline to the exact opposite meaning because he was not familiar with the terminology and did not consult with me first. Of course his terminology made the economy sound better than I intended and I’m sure that’s why he did it. I never wrote for a paper again and see clearly why their readership is dying. Those who do not tell the truth are destined for the dust bin of history.

Gongol is a site that gathers traffic count information and ranks economic blogs. On their current list they track 168 economic blogs - Economic Edge is ranked 19th in terms of daily visits and 20th in terms of page views:

There are a lot of sites that do not qualify to be tracked, and there are a few that if on the list would push us back, sites like the Ticker Forum or Zero Hedge. That’s okay, breaking into the top 20 inside of a year is way beyond my expectations and it could not have happened without all the regulars who contribute their knowledge and put up with JS-Kit! Thanks for coming by and sticking with!

Nate

By the way, at the current rate of traffic, this site will have more than 1.6 million views in the next year! Looking forward to it, it’s going to be exciting, that’s for sure.

Blatent market pumpers square off with someone who looks beyond the headline BLS numbers. The same bozos who never saw the crisis coming still don’t know what’s happening. Biderman is exactly correct.

I have news for all of them… The REAL LEADING INDICATOR is DEBT to INCOME. This ratio is getting FAR worse on all levels because the DEBT has not been cleared from the system and money printing does NOT eliminate debt when incomes are not going up – they are going down. In regards to the TIPS comment by Biderman, again he is correct about the rampant, and now exposed, printing of the Fed and Treasury. Manipulated data and money printing do not a recovery make.

I told you the numbers didn’t add up and hopefully my suggestion pointed Chris Martenson in the right direction as he has uncovered the game the Fed and Treasury are using to hide their blatant manipulation and money printing.

On 7/30/09 I said, “But here’s the real deal… the money to purchase all those Treasuries DOES NOT EXIST. It particularly does not exist if we are simultaneously going to push equities higher. It is my contention that we are on the edge and that there is a game being played by the Fed, the Treasury, and by the Primary Dealers to mask over reality.”

Now we are learning exactly how they are masking over reality… They are using the Primary Dealers (the largest of which are GS and JPM) to bid on and buy Treasury debt and then purchase it back not but five days later in a money creation/laundering scheme designed for what can only be one purpose – to HIDE the fact that they are printing FAR MORE money than the $300 quantitative easing announced by Ben Bernanke.

The bid to cover numbers we've seen lately are just preposterous. As Point has been pointing out, when the Primary Dealer bids are removed, the bid to cover ratios are disastrous. There is DEFINITELY COLLUSION occurring here between the Fed, the Treasury, and the Primary Dealers.

Frankly, I HOPE the Chinese and other holders of our debt immediately end all buying activities from the Treasury. No, I’m not anti-American, I’m PRO-American and want the ruinous activities of the rogue central banks to stop destroying and bankrupting our country. I want the lies and manipulation to end, and I want a return to fiscal sanity!

Here’s the meat of Chris’s important article – great detective work Chris!

Here's a recent example illustrating that the Fed's actions are more consistent with financial desperation than economic health.

In concert with the claims I made in the prior Martenson Insider post, The Fed bought $7 billion in Treasuries today and even more yesterday.

This is at the upper end of their recent range of already exceptional purchasing activity.If things are so rosy that every single dip is being bought in the stock market with a vengeance, I wonder why these printing operations are really necessary?

This $14 billion plus buying activity by the Fed represents fresh money created out of this air that was exchanged for the sovereign debt of the US. However, since the Fed has, for all practical purposes, never undone its permanent operations (hey, that's why they are called "POMOs") we can consider these additions of money as good as permanent themselves.

Looking at the maturity range we can see that these are all long-dated bonds with the one today specifically offering us a tantalizing clue as to how the shell game is being played.

Here's the Treasury announcement for the 7-year auction that came out on July 30 (last Thursday). Please note the specific CUSIP number circled. Every bond in this auction carries this specific identifying number.

And now let's look at the detail for this most recent POMO:

Good grief! Just last week, when the auction results were announced it was trumpeted to great fanfare that there was "more than sufficient" bid-to-cover, "strong demand" and all the rest.

And now it turns out that 47% (!) of the bonds that were taken by the primary dealers in that auction have been quietly bought by the Fed and permanently secreted to its balance sheet.

They didn't even wait a full week! A more honest and open approach would have been for the Fed to simply buy them outright at the auction but this way, using "primary dealers" and "POMOs" and all these other extra steps the basic fact that the Fed is openly monetizing US government debt is effectively hidden from a not-too-terribly inquisitive US press and public.

The speed of the shell game is accelerating.

This immediate repurchase of newly auction bonds by the Fed tells us that demand for these bonds is not nearly as high as advertised, and that things are not quite as strong as represented.

And oh, by the way, don't expect any stock market weakness while so many billions are being shoveled out the Fed and into the pockets of the primary dealers. They'll have to do something with all that freshly minted cash...

“The speed of the shell game is accelerating” is exactly correct. These people belong in PRISON not running the most powerful country on the planet.

Remember the RULE OF LAW? When the rule of law is not adhered to capital will flee. While it’s fleeing already, I suggest that everyone get ready because once this little operation becomes perfectly clear, the green shoots rally will be exposed for exactly what it is – a money printing/laundering cover up of a desperate bankrupt nation looking to keep their debt game alive.